Filing Taxes When Unemployed: A Quick Review

Filing Taxes When Unemployed: A Quick Review

Even if you’re unemployed, you may still need to file taxes. For example, unemployment benefits or government stimulus money may be taxed, or money you make selling stocks can be subject to taxation as well. Our team of Wiztax Experts put together a simple guide to answer the most common questions about taxes and tax debt when you’re unemployed.

How do I settle my tax debt if I’m unemployed?

Wiztax can help you if you’re unemployed, have a tax debt, and owe the IRS back taxes. Start by answering simple questions about your tax situation. Our free online system instantly determines if you qualify for Hardship Status based on your current financial circumstances. Once you are in a “Currently Not Collectible (CNC)” hardship status, the IRS will stop all collection activity and you will not have to make any payments towards your tax debt.

Will I have to file taxes if I’m unemployed?

If you earned or received any income during a calendar year, more than likely you’ll have to file taxes. There are a few exceptions, such as people who earned below the gross income level thresholds, but for the most part, yes, you’ll have to file taxes. The minimum income for filing a tax return depends on a combination of your filing status, age, and income amount. You can use the IRS Interactive Tax Assistant (ITA) tool to help you determine if you need to file.

Keep in mind that if you suddenly lost your job but received a severance package, severance pay is subject to taxation. Self-employment income must be reported too if it exceeds a certain amount – $400 at the time of this writing – (even if you’re below the gross income threshold), so your side hustle may be taxable.

How do I file taxes if I’m unemployed?

You file taxes similarly to how you’d file if you were employed. You’ll still receive your W-2 form from your employer, along with any other tax forms, such as those associated with a severance package or self-employment work. Plus, your state will send you a Form 1099-G for any unemployment you received. All of this income will need to be claimed on your tax return.

Is unemployment taxable?

For the most part, yes. Unemployment income is considered taxable income, and all unemployment benefits must be declared to the IRS.

Unemployment: Federal Taxes

All unemployment benefits must be reported on your federal tax return. However, there are some income tax credits.

Unemployment: State Taxes

Some states don’t tax unemployment, and therefore, you won’t have to claim the unemployment benefits to the state. Refer to your state’s unemployment guidelines to see whether or not they tax unemployment.

Will I owe taxes if I’m unemployed?

If you don’t currently have a job, but you were employed for most or part of the prior year, you’ll still need to file a tax return for that earned income. Just bear in mind that filing taxes doesn’t necessarily mean that you owe taxes. It simply informs the IRS about your income, employment situation, and family status. In fact, some people may realize that they dropped to a lower income bracket because of the COVID-19 pandemic, and therefore may owe less or even receive a refund.

Can I get a tax refund if I received unemployment?

The answer to this depends on when you lost your job and how much unemployment you received. If you were employed at a higher wage for much of the year, you likely will owe taxes. However, if you lost your job early in the year and your unemployment benefits were significantly less than your previous income, you may be entitled to a refund.

What are some tips for filing taxes when unemployed?

Some people may be eligible for certain tax credits that they weren’t before being unemployed. For example, if you used to itemize deductions, but no longer do because you lost your job, then the standard deduction may be higher, which may make your taxable income less.

There are other credits available for individuals who earn less, such as the Earned Income Tax Credit, Child Tax Credit, Child, Dependent Care Credit, and Savers Credit for contributions to your retirement accounts. These credits are designed to benefit families, both with and without children, who are low-income earners. If you haven’t been eligible for these credits in prior years, you may be this year.


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